Wednesday, September 25, 2013

tops, bottoms, uptrends, downtrends part 2

In part 1 I discussed tops and bottoms and patterns often associated with tops and bottoms.  This was not intended to identify specific buy or sell points, but to provide alerts that a change was probably taking place.  Given this knowledge you would use your other tools to identify specific buy/sell points.

But, how do I know if a trend is apt to continue.  If the tops of a trend is right translated (the up leg is longer - time and amplitude)   then the market is in an uptrend and that trend will probably continue as long as the shorter cycles are right translated.  Once, these shorter cycles become symmetrical then most like a trend change is in the  making. People talk of flags wedges, diagonals etc. which are a result of the cycles being right translated.

Take a look (Note: I am using charts of the recent past to illustrate my points and not searching past history to find a period that proves my discussion):

Now, we could probably identify flags, wedges, diagonals and other formations on the chart, but why would we want to do that when we have a much simpler way to evaluate whether a trend is apt to continue up (we continue to hold our long position) or we tighten stops as we suspect a top is near.  Our other tools will aid us in identifying a more exact time/price to act.

Finally, how do we know  if we are in a downtrend and if that trend will continue?

Again many technicians focus on patterns as with up trends.  But, we have a simpler approach because we know cycles can be symmetrical (top or bottoms) or right translated (up trends) and that leaves one other option - Left translated.  When the tops are left translated the down trend is apt to continue.  When we get a symmetrical bottom (W, V, inverted head and shoulders, etc.) most likely we are witnessing a bottom and a trend change to up.

Let's look  at a recent example see:

Note the "W" shaped bottom, not a perfect "W" but close...

So by mere observation you can often identify future market action.  You don't have to be a super technician to do so.  Hope you find this discussion helpful.


  1. Hi Inlet, just to make sure I understood correctly. If a left translated cycle within a topping pattern has longer leg, then it is a warning of a trend change. And vice versa for bottoming patterns.
    Thank you.

  2. Correct, once you see a left translated top odds favor a downtrend.

    Bottoms tend to not be translated, so we focus more on the formation of a symmetrical bottom to tell us we have trend change in progress, but a right translated top may be the first clue if we do not get the expected symmetrical bottom pattern.

  3. Very interested way to look at chart for a probable move forecasting.

    Is it applicable to any chart or just Indexes?

    Can you please show same formations on TLT, GLD, EEM, USO

    1. Of course it applies to individual stocks. Take a look at JPM and the recent symmetrical tops. From here odds favor a pullback.

  4. very simple but useful concept,nicely illustrated - thanks !